(Yicai) Jan. 4 -- The vacancy rate of Grade A office buildings in Shenzhen rose 3.2 percentage points to 26.1 percent as of the end of last year because of higher supply and weaker demand, according to the latest report from US real estate consultancy firm Cushman & Wakefield.

The net absorption of Grade A office buildings in Shenzhen was 393,000 square meters as of Dec. 31, higher than the average in the past decade, mainly because most companies stay prudent about expansion, the C&W report showed. Meanwhile, the new supply of Grade A office buildings in the southern Chinese city reached 846,000 sqm in the period, close to the all-time record of 850,000 sqm.

Given the fierce competition and the weak demand, office building owners had no choice but to lower rents. According to statistics from C&W, the average monthly rent of Grade A office buildings in Shenzhen plunged 8.4 percent to CNY186.50 (USD26) per sqm last year from the year before. The rent of over 90 percent of the city’s Grade A office buildings fell in the period.

More than half of Shenzhen’s office buildings had a higher vacancy rate despite the decrease in rent. This is because the vacancy rate is also related to office buildings’ operation and service quality, not only rent, said Zhang Xiaoduan, deputy head of C&W’s research arm.

Office building owners have begun to change their strategies, Zhang noted. In fact, many Grade A office building owners in Shenzhen are considering renting to hotels, he added.

The main companies driving Shenzhen’s Grade A office building leasing market last year were those engaged in the finance, technology, media, and telecommunications, and specialized services industries. Leasing deals with companies in these three industries accounted for about 70 percent of the total by leased area in the past three years.

The ratio of TMT firms to the total leasing has been falling in recent years because of the adjustments in the Chinese internet industry, reaching 19.7 percent last year. The ratio for finance and specialized services rose to 34.3 percent and 16 percent, respectively.

Shenzhen will have over 1.4 million sqm of Grade A office buildings completed and coming into the market this year. The slow pick-up in demand is not enough to stabilize the leasing market, so rent prices in the city will continue to drop together with the vacancy rate this year, C&W predicted.

Editors: Shi Yi, Futura Costaglione